Citigroup Fined $500,000 in Customer Abuse Case

The Financial Industry Regulatory Authority fined a securities brokerage arm of Citigroup $500,000 for failing to supervise a former employee who misappropriated most of a million dollars from clients, including her own father.

Over eight years, Moon misappropriated $749,978 from 22 customers, falsified account records and engaged in unauthorized trades in customer accounts.

The fine comes almost exactly two years after FINRA barred Moon from working again in the securities industry.

According to the brokerage industry regulator, Moon took advantage of "supervisory lapses" to take money from the accounts of elderly, ill or "otherwise vulnerable customers." These included elderly widows, a senior with Parkinson's disease and her own father.

FINRA said it is still investigating individuals involved in the supervision of Moon.

FINRA found that:

Citigroup failed to detect or investigate a series of "red flags" that upon further inquiry should have alerted the firm to Moon's improper use of customer funds. The red flags included exception reports highlighting conflicting information in new account applications and customer account records reflecting suspicious transfers of funds between unrelated accounts. Citigroup also failed to implement reasonable systems and controls regarding the supervisory review of customer accounts, thus enabling Moon to falsify new account applications and other records.

In one case, Moon transferred $150,000 from an account held by a customer to a fraudulent account Moon created in her father's name. Two days later, Moon transferred $90,000 from the fraudulent account in her father's name to an account Moon controlled.

In January 2006, Moon created a phony account for her father, without his knowledge or consent, and used this account to misuse approximately $30,000 belonging to her father and approximately $250,000 belonging to other Citigroup customers.

On Jan. 20, 2006, Moon forged her father's signature on a letter of authorization to Citigroup, changing the address on the account to keep account statements from being sent to her father.

From August 2006 to March 2008, Moon requested and processed unauthorized cash transfers into her father's phony account from other Citigroup customers totaling over $250,000. During this same timeframe, Moon — again forging her father's signature — disbursed the funds from the account for her own personal use.

In another case, Moon misappropriated nearly $80,000 from an elderly widow's account. An exception report highlighted two address discrepancies in the customer's account documents where the street address did not correspond to the city and zip code provided for the address and the telephone prefix did not match the zip code of the address.

Moon, who had entered the account information, attempted to explain to Citigroup that the discrepancies arose because the client had moved to Arizona, an explanation that did not seem reasonable. Nonetheless, Citigroup accepted Moon's explanation without further inquiry, thus enabling Moon to continue her misappropriation of customer funds.

"Citigroup had reason to know what she was doing and could have stopped her,'' said Brad Bennett, Executive Vice President and Chief of Enforcement at FINRA.

Citigroup said it discovered "suspicious activity by a former Smith Barney employee" in 2008, terminated her, notified authorities and reimbursed clients.

"Protecting our customers is paramount and fraudulent behavior will not be tolerated. We will provide any assistance necessary to ensure that the former employee is prosecuted to the fullest extent of the law,'' the company said, in a statement about the Moon case.